How To Successfully Conduct a Capital Raise

What is a capital raise? Basically, a capital raise is obtaining capital (i.e. cash money) from investors to help fund new or growing business ventures, where the investors will own a share in the business in exchange for their investment.

A capital raise is a great option for many start-up hospitality businesses, especially those that are not self-or bank-funded.  Investors can be found anywhere: from family and friends to like-minded business people within your community.

That said, a capital raise is certainly one of the most difficult parts of opening a new business, and like anything, the more prepared you are, the better you will fare.

According to VSAG’s Dan Simons, “The reality is that there are no joys, except the day you actually close the funding and sign the final papers. The key to surviving the emotional pendulum of a capital raise is to have outstanding preparation and real clarity; clarity on all aspects of your project and why it’s a great opportunity for investors that has a high likelihood of hitting their desired ROI target.”

That being said, it takes a lot of hard work, selling yourself and your dream, and preparing yourself for disappointment. Although obtaining capital for starting a restaurant isn’t an easy process, we’re here to help.  As professional restaurant consultants, we at VSAG have been down this road more than once.  So, we want to share what we have learned about the joys and miseries of raising capital for starting a restaurant to help simplify that process for you:

•    Have Complete Clarity for both you and your future investors. Create a clear mission statement. What is your restaurant all about? Engage investors by top-lining the specifics of your business plan, all the while knowing every last detail of the plan.  Investors need complete clarity on why this venture will be beneficial and a great decision for them … and confidence that you are prepared.

•    Hone Your Presentation Prowess. Developing a clean, detailed presentation where the business plan is well written, fully complete and clearly laid out is a must. Begin with your mission statement and convey your brand: keep all key messages, visions, ideals, point of differences, how you’ll make it happen and the like streamlined. Consistency is key.

•    Be Prepared on Paper. Prepare for and anticipate the probing questions to the best of your ability. Know your product and plans inside and out so you are ready to answer any question thrown at you.  Start your process with a “Terms Sheet” outlining the major deal points, and use this document to gauge investor interest and get initial commitments.

•    Be Prepared Emotionally. You’ll need to steel yourself emotionally for the pendulum: the great and the not so great, the promises and the (many) reneges. We liken the process of raising capital for starting a new restaurant to setting the goal of climbing a mountain just slightly higher than any one you’ve climbed before. As much as one believes it’s doable, most will fail.

•    Be a Person that You Would Invest In. In the beginning, you may think all that will exchange hands is the money. But, with experience comes the realization that it is more than that – it is not only about selling your business plan, but selling yourself … your character, your integrity, your passion.   A good idea is only bolstered by the person who wants to bring it to life.

•    Get Your Legal Documents in Order. It is certainly a best practice to use attorneys to prepare an Operating Agreement that sets up the investment terms, ownership and management structure. While such documents can be purchased online as templates, we believe that a great business attorney brings tremendous value.  Once your Terms Sheet has garnered significant interest from potential investors it then makes sense to invest the time and money with your attorney for the Operating Agreement, and related subscription agreements.  Your attorney can also provide the guidance on all related documents you may need, such as the Private Placement Memorandum and a statement of Accredited Investors.

Raising capital for starting a restaurant is not without its highs and lows. In the end, if you prepare well, and believe in yourself and your business plan, others will too.